The Federal Reserve and America's Negative Exchange Rate
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This paper examines the role and practices of the Federal Reserve, particularly as they relate to America's negative exchange rate. First, the paper describes the function of the Federal Reserve, which is primarily to fix national interest rates and foreign exchange rates. Next, the paper highlights the Feds actions during the current financial crisis. These include a focus on the Fed cutting interest rates. Finally, the paper analyzes policies that are thought to be curative to the financial crisis, further discussing the foreign exchange rates. The paper concludes by noting this policy is a result of a growing global economy and the US striving to remain an economic leader.
From the Paper:"Of course, considered across a longer-termed timeline, such policy effects take on revealing proportion. Income tax cuts must traditionally be paired with a decrease in budgetary savings. Such is certainly evident in the Bush policy approach, which had reversed the record budgetary surpluses established during the wildly expansionary Clinton era in order to sustain an excess of two-trillion dollars in federal income tax cuts while spending liberally on military defense contracts and overseas reconstruction efforts. The record spending deficits which now dominate the budgetary outlook for the U.S. are part of a recession picture that casts a shadow on future economic prospects. Indeed, during this same duration of massive interest rate cutting, "the U.S. dollar has been losing value against several major currencies this decade. Since 2001-02, the U.S. currency has fallen about 50 percent against the euro, 40 percent against the Canadian dollar and 30 percent against the British pound." (Wang, 1) This would largely be the result of a clear pattern of inflation in the United States, prompted by stagnancy and what would eventually prove to be a fomenting recession. The Federal Reserve would largely function in a reactionary role here, attempting to respond to increasingly negative market conditions by stimulating spending on account of lowered interest rates."
Sample of Sources Used:
- Associated Press (AP). (2002). Text of Statement on Interest Rate Policy. The New York Times. Online at http://query.nytimes.com/gst/fullpage.html?res=9C06E3DA143AF932A25751C1A9649C8B63
- Geewax, M. (2009). Fear of Inflation Spikes Long-Term Interest Rates. National Public Radio. Online at http://www.npr.org/templates/story/story.php?storyId=104741397
- Walsh, Carl E. (2002). The Role of Fiscal Policy. Economic Research and Data. Online at http://www.frbsf.org/publications/economics/letter/2002/el200226.html
- Wang, J. (2008). Why Are Exchange Rates So Difficult to Predict? Federal Reserve Bank of Dallas. Online at http://www.dallasfed.org/research/eclett/2008/el0806.html
- Zeng, M. (2009). Fate of Treasurys Hinge On Fed Next Week. Dow Jones Newswires. Online at http://online.wsj.com/article/BT-CO-20090529-712350.html
Cite this Term Paper:
The Federal Reserve and America's Negative Exchange Rate (2011, November 12) Retrieved February 23, 2020, from https://www.academon.com/term-paper/the-federal-reserve-and-america-negative-exchange-rate-148884/
"The Federal Reserve and America's Negative Exchange Rate" 12 November 2011. Web. 23 February. 2020. <https://www.academon.com/term-paper/the-federal-reserve-and-america-negative-exchange-rate-148884/>